Causes and consequences of psychological contracts among ...

Int. J. of Human Resource Management 12:7 November 2001 1152–1165

Causes and consequences of psychological contracts among knowledge workers in the high technology and nancial services industries

Patrick C. Flood, Thomas Turner, Nagarajan Ramamoorthy and Jill Pearson Abstract As organizations shift the central focus of their competitive strategy away from value appropriation towards value creation it is to knowledge workers that they will look to provide the innovation to fuel their continued development. The state of the relationship between the knowledge worker and the employer – the psychological contract – will determine whether this source of innovation and creativity is released. In this study, we developed and tested a causal model of the causes and consequences of psychological contract. Over four hundred participants who were knowledge employees drawn from eleven leading edge companies in the high-technology software, manufacturing and nancial services sector participated in the study. We found support for the hypothesis that the psychological contract and those organizational processes relating to procedural justice would have a direct effect on two critical organizational outcomes, namely, employee commitment and intention to remain with the organization. We also found support for the hypothesis that psychological contract variables mediated the relationship between organizational processes and employee commitment and intention to stay with the organization. Keywords

Psychological contracts; value creation; knowledge workers.

Introduction Industrial society is in the midst of a new phase of evolution towards a post-industrial era. The driving force of this change is the centrality of intellectual capital as a source of innovation and organizational advantage (Flood et al., 2001). Theoretical knowledge rather than labour is becoming the new source of added value and growth, a new wealth of nations. Knowledge and information, Daniel Bell (1973) predicted, would become the means not only in service industry but also manufacturing for adding value and become the strategic resource and transforming agent of the post-industrial society. More recently, Castells (1996) argues that modern industrial societies are well advanced on their journey into the new informational mode of development where the source of productivity and growth lies in the generation of knowledge. Occupations with a high knowledge content in their activity become increasingly central to economic activity Patrick C. Flood, Department of Personnel and Employment Relations, University of Limerick, National Technological Park, Plassey, Limerick, Ireland; Thomas Turner, University of Limerick; Jill Pearson, University of Limerick; Nagarajan Ramamoorthy, Marymount University. The International Journal of Human Resource Management ISSN 0958-5192 print/ISSN 1466-4399 online © 2001 Taylor & Francis Ltd http://www.tandf.co.uk/journals DOI: 10.1080/09585190110068368

Flood et al.: Psychological contracts among knowledge workers

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and perhaps a critical source of competitive advantage to organizations as these employees are the ones to create most value to the organization (Flood et al., 2000). Indeed, some twenty years ago Bell predicted an expansion of new work in the knowledge sector such that information workers would come to predominate in the economy. The rise in knowledge work is particularly germane to the categories of managers, professionals and associate professional. For these occupations, intellectual effort is even more important than physical endeavour in carrying out their work. Robert Reich (1992), the former US Secretary for Labor, in his book The Work of Nations, has described the rise of the symbolic analyst as one who is as comfortable conducting their banking and general business affairs on the Internet as they are conducting face-to-face business transactions. Organizations are responding to these changes by reducing their hierarchy and attempting to minimize internal boundaries as the new competitive focus moves from value appropriation to value creation (Carroll and Flood, 2000). In an era of shortage of knowledgeable and skilled employees, knowledge workers have greater choice about which they want to work for, resulting in organizations competing for knowledge workers rather than knowledge workers competing to join a particular organization. Also, the tacit knowledge these employees possess may be exploited only if these employees decide to part with the knowledge on a voluntary basis. The creative energy of these employees can be realized by organizations only if these employees are committed to the organization. Such commitments cannot be realized through a traditional hierarchy that emphasizes conformance solely through employment relationships based upon written employment contracts. Unwritten implicit agreements between the employees and their organization, which Rousseau (1995) terms as ‘psychological contracts’, are also crucially important. Also, several studies (e.g. Robinson and Rousseau, 1994; Robinson, 1996; Milward and Hopkins, 1998; Turnley and Feldman, 1999; Westwood et al., 2001) have shown that violations of psychological contracts result in several undesirable organizational outcomes such as lower trust towards the employer, lower organizational commitment and a propensity to leave the organization. Considering the criticality of knowledge employees in today’s society, in this study, we focus our research on the causes and consequences of the psychological contract between these knowledge workers and their employing organization. In this paper, we develop a causal model of psychological contract among knowledge workers and test this model. Speci cally, we suggest that two organizational processes, meritocracy and equity, which relate to concepts of procedural justice, have a direct effect on two organizationally relevant outcomes, organizational commitment and intention to stay with the employer. In addition, we also propose that the three psychological contract variables, met expectations, perceived obligations to contribute, and felt obligation to conform, mediate the relationship between these organizational processes and the two outcome variables. The category of knowledge employees who participated in this study are indeed symbolic analysts: they average less than 35 years of age, are mobile and well educated, with a predominance of computer systems, information technology and software engineering educational quali cations. Both categories may be considered to be central to the creation and dissemination of information and technology-based innovation. Relatively little research work has been carried out on the psychological contract for such employees in Ireland despite their growing economic contribution. This paper is organized into four sections. In the rst section, we develop a model of psychological contract incorporating both causes and consequences. In the second section, we describe the methods and measures used to test the model. In the third

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Figure 1 Hypothesized relationships between organizational processes, psychological contract, commitment and intent to remain

section, we present the empirical results. Finally, we conclude with implications for practice and research. A causal model of causes and consequences of psychological contract In this section, we rst propose our causal model relating the antecedents and consequences of psychological contract. Then we present our theoretical rationale for the model with a relevant review of the literature. Figure 1 presents our model. The relationships between the various elements in the model and the internal relationships between the psychological contract variables will now be discussed. Recently there has been a signi cant interest in how organizations manage the psychological contract employees have with their employing organizations. Several de nitions of the psychological contract have been advanced. Levison (Levison et al., 1962) described it as the sum of mutual expectations between the organization and the employee. Rousseau (1995), perhaps the most prominent academic writer in this area, de ned the psychological contract as ‘an individual’s belief regarding the terms and conditions of a reciprocal exchange relationship between the focal person and another party’ (see also Herriot and Pembertion, 1996). A psychological contract emerges when one party believes that a promise of future returns has been made and thus an obligation has been created to provide future bene ts. These promised future returns on the part of the organization engender expectations among employees. Speci cally, such expectations may encompass attributes such as pay and bene ts, training and skill development, interesting work, and so on. Thus, employees may perceive a ful lment of the contractual obligations on the part of the employer when their expectations are met. Needless to mention, several studies (Wanous and Colella, 1989; Wanous et al., 1992; Morrison and Robinson, 1997) have emphasized the critical role of met expectations in affecting employee behaviours. When these expectations are ful lled, they result in increased commitment and intent to remain with the organization (Wanous et al., 1992). Therefore, we propose that met expectations directly affect organizational commitment and intention to stay with the employer. The changing nature of the external business environment has led to changes in the traditional form of the psychological contract. Anderson and Schalk (1998) contrast the


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traditional form with an ‘emergent’ one. The traditional form is characterized by job security, loyalty to company within a context of relatively predictable job structures and promotion opportunities. We can suggest that the traditional form may be characterized as evoking conformance behaviour on the part of the employees or by the degree to which employees meet certain minimally acceptable standards. We call these felt obligations to conform (obligation to conform). In our model, we suggest that the greater the degree to which employee expectations have been met, at least at a basic level, the more likely they are to feel an obligation to conform. Hence, we are proposing a direct effect of met expectations on obligation to conform, which in turn will positively affect the employees’ commitment to the organization and their intention to stay with the employer. The emergent form suggested by Anderson and Schalk (1998) is characterized by an equitable exchange with regard to both the inherent interest and variety of the work and explicit rewards and bene ts. That is, the psychological contract becomes more relational than transactional (Milward and Hopkins, 1998). Such a contract is likely to be more dynamic (Guzzo et al., 1994) and re-negotiation is a distinct possibility in the light of changing market circumstances and as the contribution of the employee changes over time. Its underlying basis is likely to depend on the added value contributed by the employee to the organization. This is particularly important in the case of the knowledge workers where knowledge is more private and tacit. The latter point is important, as one cannot extract such knowledge unless the employee is willing to part with it on a voluntary basis. We can suggest that the emergent form extends beyond the traditional form and includes such behaviours as being a team player, expending extra effort as needed and, in general, placing the organization’s interest ahead of one’s own interest. We call these felt obligations to contribute (obligation to contribute). When employee expectations have been met, they are more likely to feel an obligation to contribute to the organization, which in turn will likely result in a higher level of commitment to the organization and a greater propensity to stay with the organization. Hence, we hypothesize that met expectations will affect obligations to contribute, which in turn will affect organizational commitment and intention to stay with the employer. In our model, we also incorporate two organizational processes, equity perceptions and meritocracy, both of which are key aspects of procedural justice in organizations. We de ne meritocracy as the degree to which employees perceive that their organizations reward employees for their performance and promotions are based on merit rather than any other forms such as nepotism or seniority. Consistent with equity theory (Adams, 1965), we consider the notion of equity a critical variable in our model. That is, the degree to which employees perceive that they are fairly rewarded for their effort and responsibilities may also affect their behaviours. Particularly with knowledge workers, the perceived fairness of an organization’s reward and recognition practices plays a very critical role in encouraging employees to part with the value-creating knowledge, which builds organizational advantage. The employee responsibilities encouraged under this regime are to be entrepreneurial and innovative, to provide both product and process innovations to add value and reduce costs. Contractually the emphasis in this emergent contract will be individual-level negotiations between the knowledge worker and employer and collective representation is more likely to be the exception than the norm. Career management is rmly seen as the individual knowledge worker’s own responsibility based on continuous updating of a portfolio of skills. An astute employer will support this process in an active way in order to retain the best and most productive employees (Lepak and Snell, 1999). Therefore, in our model, both

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meritocracy and equity perceptions are hypothesized to affect the three psychological contract variables (met expectations, obligations to conform and obligations to contribute) as well as the two organizationally relevant outcome variables, commitment and intention to stay. Finally, although we treated the two organizationally relevant outcome variables as independent, several models of employee turnover (e.g. Mobley, 1982) show that organizational commitment in uences whether employees stay or leave. Hence, we also propose a direct effect of organizational commitment on intention to stay. In summary, in our model the two organizational processes, meritocracy and equity, are hypothesized to affect the three psychological contract variables and the two organizationally relevant outcome variables. Met expectations, one of the three psychological contract variables, is hypothesized to affect the other two psychological contract variables as well as the two organizational outcomes. Obligations to contribute and obligations to conform, the other two psychological contract variables, have an effect on the two organizational outcomes. Finally, organizational commitment is hypothesized to affect the intention to remain with the organization. The full set of hypotheses underpinning our model of the causes and consequences of the psychological contract can be listed as follows: Hypotheses Hypothesis 1:

Organizational commitment is predicted to have a direct impact on intention to remain.

Hypothesis 2:

The psychological contract measures of met expectations and obligations to contribute and to conform are predicted to have a direct impact on organizational commitment and intention to remain.

Hypothesis 3:

Organizational processes are predicted to have a direct impact on organizational commitment and intention to remain.

Hypothesis 4:

Organizational processes are predicted to have a direct impact on the psychological contract measures of met expectations, obligation to contribute and to conform.

Hypothesis 5:

Met expectations are predicted to have a direct impact on the obligation to contribute and to conform.

Hypothesis 6:

The psychological contract measures are predicted to mediate the relationship between organizational processes and organizational commitment and intent to remain.

Method Sample Four hundred and two (402) full-time employees from eleven organizations in the high technology and nancial sectors participated in the study. The sample consisted of 102 females (25.8 per cent) and 294 males (74.2 per cent) with six missing responses. Ninety-seven employees were aged below 25 (24.7 per cent), two hundred and ftythree employees were aged between 25 and 35 years (64.4 per cent) and forty-three employees were aged over 35 years (10.9 per cent). Two hundred and sixty- ve participants (68.8 per cent) had a college degree, thirty-eight employees (9.9 per cent)


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had professional diplomas and fty-eight employees (15.1 per cent) had a master’s degree. The remaining 6.2 per cent of the employees had other quali cations, such as doctorates, post-graduate diplomas, professional certi cations, etc. Thus, these participants were highly quali ed and could be justi ably described as ‘knowledge workers’. Measures Meritocracy We measured meritocracy using three items with 1 5 strongly disagree and 5 5 strongly agree as anchors. These three items were ‘Salary increases are based on ability and how well you do your work’, ‘There is a good chance of promotion in this company’ and ‘Promotion is based on ability and how well you do your work’. The three items exhibited an internal consistency reliability (Cronbach’s alpha) of 0.72. Data coding was done in such a way that a higher score indicated a higher perception of meritocracy. Equity We measured equity perceptions using a two-item measure with 1 5 strongly disagree and 5 5 strongly agree as anchors. These two items were ‘I am fairly rewarded for the amount of effort I put in’ and ‘I am fairly rewarded for the responsibilities I take on’. The two items exhibited an internal consistency reliability (Cronbach’s alpha) of 0.90. We coded the data such that a higher score indicates a higher level of perceived equity. Met expectations We measured met expectations using twenty-seven items. Participants were asked to indicate the degree to which their expectations were met with 0 5 I have no expectations about this item and 4 5 To a very great extent, as anchors. These twenty-seven items were designed to measure the met expectations of the participants along ve dimensions: monetary expectations, personal development/skills development, intrinsic aspects of the job, conditions of work and co-worker relations. These twenty-seven items exhibited an internal consistency reliability (Chronbach’s alpha) of 0.92. In this measure of met expectations, a higher score indicates a higher level of met expectations. Obligations to contribute We measured obligations to contribute using sixteen items with 1 5 not at all obligated and 4 5 very obligated, as anchors. The internal consistency reliability of the sixteen items was 0.86. Typical items here were the willingness to work overtime, share new knowledge, and exhibit pro-social behaviours, such as being a good team player. A higher score on the obligations to contribute variable indicated a higher level of felt obligations to contribute. Obligations to conform We measured obligations to conform using seven items with 1 5 not at all obligated and 4 5 very obligated, as anchors. These seven items exhibited an internal consistency reliability (Chronbach’s alpha) of 0.66. Typical items here were adherence to company norms, such as dress codes and acceptable modes of behaviour. Similar to obligations to contribute, a higher score on obligations to conform indicates a higher level of felt obligation to conform. Organizational commitment Organizational commitment was measured using four items with 1 5 strongly disagree and 5 5 strongly agree as anchors. These four items were ‘I am quite proud to tell people I work for this company’, ‘To know that my own

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work has made a contribution to the good of the organization would please me’, ‘I feel myself to be part of this company’ and ‘In my work I like to feel that I am making some effort not just for myself but for the company as well’. The internal consistency coef cient (Chronbach’s alpha) of these four items was 0.67. A higher score on organizational commitment indicates a higher level of commitment. Intention to remain Intention to remain with the organization was measured using three items with 1 5 strongly disagree and 5 5 strongly agree, as anchors. These three items were ‘Even if the company was not doing well, I would be reluctant to change to another employer’, ‘The offer of a bit more money with another employer would not seriously make me think of changing my job’ and ‘I would prefer to stay with this company as long as possible’. These three items exhibited an internal consistency reliability (Chronbach’s alpha) of 0.70. A higher score on intention to remain indicates a greater propensity to continue the employment relationship with the employer. Age and gender Employees’ gender was converted into a dichotomous variable (0 5 female and 1 5 male). Employees’ age was measured using an ordinal scale with 1 representing under the age of 25, 2 representing 25 to 35 years of age and 3 representing over 35 years of age. In deriving the path coef cients, we used age and gender as control variables. Results This study was concerned with investigating the impact of organizational processes and psychological contract on the commitment and intent to remain of knowledge employees. We hypothesized that organizational commitment would be positively related to the intention to stay (a signi cant path from commitment to intention to stay). We also hypothesized that the three psychological contract variables (met expectations, obligations to contribute and obligations to conform) would be positively related to the two organizational outcomes (commitment and intention to stay). Positive and signi cant path coef cients from the three psychological contract variables to the two organizational outcome variables (commitment and intention to stay) would support this hypothesis. We also hypothesized that the paths from met expectations to obligations to contribute and met expectations to obligations to conform would be positive and signi cant. In our hypothesized model, we also predicted that the two organizational processes (equity and meritocracy) would be positively and signi cantly related to the two organizational outcomes (commitment and intention to stay). Positive and signi cant path coef cients from equity to commitment and intention to stay and meritocracy to commitment and intention to stay would render support to these direct effects. Finally, we also hypothesized indirect (mediated) effects of meritocracy and equity on the two organizational outcomes (commitment and intention to stay) through the three psychological contract variables (met expectations, obligations to contribute and obligations to conform). When the paths from the two organizational process variables (meritocracy and equity) to the three psychological contract variables are positive and signi cant and the paths from the three psychological contract variables to the two organizational outcome variables are signi cant and positive, the fully mediated model would be supported. Path coef cients were obtained through multiple regression equations as suggested by Pedhazur (1982). Also, missing responses on a few variables resulted in reducing the sample size to about three hundred. In order to maximize the sample size, we used mean


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substitutions to handle the missing data. The use of mean substitution did not alter the results very much. On the contrary, it proved to be a more conservative test of the model as the magnitude of several path coef cients declined with this approach. Table 1 contains the means, standard deviations and the inter-correlation matrix of the study variables. Most of the correlations were in the moderate range as would be expected among these types of interrelated perceptions. Table 2 presents the results of the multiple regression equations predicting intention to stay and organizational commitment as the outcome variables with all other endogenous variables in the model and the two control variables (age and gender). Table 3 presents the results of the multiple regression equations predicting the three psychological contract variables. Figure 2 summarizes the positive and signi cant path coef cients. Paths that were not signi cant are not reported. As predicted, organizational commitment impacted positively on the intention to stay, supporting hypothesis 1. Among the three psychological contract variables, we found the strongest support for the direct effect of met expectations on intention to stay, providing partial support for hypothesis 2. The other two psychological contract variables did not impact on the intention to stay directly. However, obligation to contribute affected intention to stay through the mediating variable of organizational commitment. The path from obligations to contribute to commitment and the path from commitment to intention to stay were both signi cant. Obligations to conform did not have any impact on the two organizational outcomes and, thus, proved to be a weak link in the model. In relation to the two organizational process variables, meritocracy impacted on intention to stay directly, as did equity, and both coef cients were statistically signi cant, supporting hypothesis 3. While the direct effects model was supported for the two organizational process variables, for the psychological contract variables, it was only partially supported. In examining the effects of the two organizational processes on the three psychological contract variables, we found partial support for hypothesis 4. Meritocracy impacted on two of the three psychological contract variables, met expectations and obligations to conform, as indicated by the signi cant path coef cients. The equity variable, on the other hand, impacted on only met expectations and not the other two psychological contract variables. Turning our attention to the variables affecting organizational commitment, one of the two psychological contract variables, met expectations, was positive and signi cant. Also, the other psychological contract variable, obligations to contribute, positively affected organizational commitment. Obligations to conform failed to have any signi cant effect on commitment. Between the two organizational process variables, meritocracy positively affected commitment, as hypothesis 3 suggested. The other organizational process variable, equity, did not have any impact on commitment. However, the equity variable did have an indirect effect on commitment through the intervening variable of met expectations. The path from equity to met expectations, which supports hypothesis 4, and the path from met expectations to commitment were both signi cant. Similarly, meritocracy had an indirect effect on commitment through the intervening variable of met expectations. It is worth observing too that hypothesis 5 concerning the relationship between met expectations and both the obligation to contribute and the obligation to conform was supported. While met expectations mediated the relationship between the organizational process variables and commitment; obligations to contribute mediated the relationship between meritocracy and commitment only. Thus there is at best partial support for hypothesis 6.

Gender

Organizational commitment

Intention to stay

Met expectations

Obligations to contribute

Obligations to conform

Meritocracy

Equity

2

3

4

5

6

7

8

9

* p , .05 ** p , .01 *** p , .001

Age

1

Variables

3.26

3.17

2.93

3.11

2.77

3.09

4.00

0.74

1.86

Mean

.94

.82

.45

.48

.46

.84

.53

0.44

0.58

Standard deviation

.02

-.10*

.02

.10*

-.07

.02

-.02

.11*

1

-.05

-.06

-.16**

-.16**

-.07

.06

.01

2

.23***

.27***

.21***

.24***

.42***

.52***

3

Table 1 Means, standard deviations and correlations among variables used in the study

.35***

.39***

.17**

.13*

.47***

4

.49***

.52***

.23***

.21***

5

.09*

.12*

.69***

6

.10*

.18***

7

.48***

8

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Table 2 Results of the multiple regression equations predicting organizational commitment and intention to stay Intention to stay ß (t-statistic)

Variables Control variables Age Gender

.05 (1.21) .08 (1.91)

Psychological contract variables Met expectations Obligations to contribute Obligations to conform 2

Organizational process variables Meritocracy Equity

.02 (0.40) .06 (1.31) 2

.16 (3.45)*** .06 (1.10) .06 (1.16)

.22 (4.06)*** .17 (2.64)** .04 (0.59)

.16 (3.33)*** .11 (2.34)*

.10 (1.84)* .08 (1.43)

Organizational outcome variables Organizational commitment

.40 (9.13)***

R2

.38

F

Organizational commitment ß (t-statistic)

–

29.91***

.16 11.08***

* p , .05 ** p , .01 *** p , .001 N 5 402

Table 3 Results of the multiple regression equations predicting psychological contract variables

Variables Control variables Age Gender Organizational process variables Meritocracy Equity Psychological contract variables Met expectations R F

2

* p , .05 ** p , .01 *** p , .001 N 5 402

Obligation to contribute ß (t-statistic)

Met expectations ß (t-statistic) 2 2

Obligation to conform ß (t-statistic)

.03 (0.73) .03 (0.66) 2

.14 (2.75)** .16 (3.24)*** 2

.06 (1.15) .15 (2.98) **

.31 (6.19)*** .26 (5.27)*** 2

.07 (1.17) .02 (0.30) 2

.12 (2.13)* .03 (0.50)

N.A. .25 32.63***

.15 (2.75)** .07 6.20***

.14 (2.45)* .07 5.77***

Figure 2 Emergent path model of causes and consequences of the psychological contract

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In passing, we should also mention that the two control variables, age and gender, in general did not have much impact on the model. However, age had a signi cant effect on obligations to contribute indicating older employees had a higher level of felt obligation to contribute than younger employees did. Similarly, gender impacted on obligations to contribute, suggesting male employees had lower felt obligations to contribute than female employees had. Male employees also exhibited lower felt obligations to conform, as indicated by the path coef cient from gender to obligation to conform. Overall, however, age and gender did not seem to have much impact on our model. In the next section, we shall discuss the implications of our study for practice and research. Discussion Among the knowledge workers who participated in the study, the perceived meritocracy, that is, rewards and promotions based on merit and performance, appears to have the greatest impact on the two outcome variables, both directly and indirectly through a perceived ful lment of the psychological contract. Equity perceptions had only a moderate link in the model. While the latter impacted on intention to stay directly and indirectly, it did not affect the commitment variable. Based on the results of our study, it can be concluded that equitable rewards affect whether individuals feel that their expectations have been met, which in turn affects the commitment of employees towards their organization. The results of our study also indicated that the most important aspect of the psychological contract relates to the role of met expectations. It appears that, when employees perceive that their expectations have been met, they feel more obligated to contribute to the good of the organization and conform to organizational values and norms. This may perhaps evoke citizenship behaviours on the part of the employees. Obligations to contribute also emerged as a very strong factor. It is most important that knowledge employees are motivated to part with their tacit knowledge and skills on a voluntary basis as this forms the bedrock of the innovation process within high technology rms. Treating these employees fairly and equitably makes them feel that the employer has ful lled his/her part of the psychological contract. This perception in turn encourages them to contribute to the good of the organization, stay committed to the organization and exhibit a reduced tendency to quit the company even for the sake of money and growth opportunities . Obligations to conform did not emerge as an important factor. While it appears somewhat surprising, the result may have more to do with the participant characteristics in our study. Most of them are well-educated and highly knowledgeable employees. They have highly marketable skills and, hence, may not feel the necessity to conform due to pressures imposed on them. Conformance behaviour, in this sense, may more closely resemble the traditional form of employment relationship as opposed to the emergent form (Anderson and Schalk, 1998) or the transactional form as opposed to relational form (Milward and Hopkins, 1998). Such forms may not be appropriate for knowledge workers, but may perhaps be more appropriate for other types of workers. Conclusion Organizations concerned to improve the levels of organizational commitment and retention among knowledge employees must ensure, rst, that merit and fairness govern the organization’s rewards. Second, they should ensure that the jobs such employees do are interesting and challenging. These ndings for our sample are fairly similar to those

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found in relation to trust, job satisfaction and intent to remain in Robinson and Rousseau’s (1994) study of psychological contract violation in an alumni population. The human resource management practice implications of this study are considerable. The ndings reinforce the importance of continuously attending to the work-design side of the employment contract. Knowledge workers remain with employers who provide interesting and challenging assignments which allow workers to build a portable portfolio of skills. They also are motivated to remain with employers who ensure that the twin pillars of procedural justice in reward administration, namely merit and equity, are carefully observed. The psychological contract is a dynamic contract and employers therefore need regularly to check the satisfaction levels of their employees. Indeed the inherent risks of both parties can be minimized through efforts designed to render the contract more transparent and tangible. This can best be done by open and frank discussions at all stages of the manpower ow process – through realistic job previews, through the induction of employees into the norms and culture of the organization and frank discussions concerning expectations, obligations and rewards at the performance review process (Sims, 1994). Such factors need to be attended to continuously by employers interested in holding on to valuable and marketable employees. We end with a plea for further research on this topic as we believe that further research in different industrial sectors (including public-sector organizations which employ substantial numbers of highly skilled employees) is warranted. Such research could address issues such as to what extent employers are addressing employee concerns in relation to met expectations and procedural justice in the administration of rewards in an era of labour shortage and the role of employee share ownership in retaining key employees. Longitudinal research on cohorts of university graduates would be particularly valuable. This would allow the impact of different socialization processes and employer strategies on the psychological contract to be studied in more nely grained detail. Acknowledgements We wish to thank the Irish Management Institute and Conor Hannaway for funding the data collection part of this study. We thank our anonymous referees for helpful comments and the editors of this special issue. Denise Rousseau of Carnegie Mellon University and Snehal Tijoriwala generously advised on instrument design and gave permission to use a portion of a previous questionnaire used by them. Margaret Heffernan and Geraldine Finn were the capable eld of cers responsible for data collection. A special word of thanks is due to the participating companies, their human resource managers and their employees for facilitating this research. References Adams, J.S. (1965)’ Inequity in Social Exchange’. In Berkowitz, L. (ed.) Advances in Experimental and Social Psychology, Vol. 2. New York: Academic Press, pp. 267–99. Anderson, N. and Schalk, R. (1998) ‘The Psychological Contract in Retrospect and Prospect’, Journal of Organizational Behavior, 19: 637–49. Bell, D. (1973) The Coming of Post-Industrial Society. New York: Basic Books. Carroll, S.J. and Flood, P.C. (2000) ‘Editors’ Introduction ’. In Flood, P., Dromgoole, T., Carroll, S.J. and Gorman, L. (eds) Managing Strategy Implementation: an Organizational Behaviour Perspective. Oxford: Blackwell. Castells, M. (1996) The Rise of the Network Society. Cambridge, MA: Blackwell. Flood, P., Turner, T. and Hannaway, C. (2000) Attracting and Retaining Knowledge Employees: Irish Knowledge Employees and the Psychological Contract. Dublin: Blackhall.


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